PENSION AND OTHER POST-EMPLOYMENT BENEFIT PLANS

12 Months Ended

Dec. 31, 2021

Pension And Other Postretirement Benefit Expense [Abstract]

PENSION AND OTHER POST-EMPLOYMENT BENEFIT PLANS

NOTE 9: PENSION AND OTHER POST-EMPLOYMENT BENEFIT PLANS

This note provides details about defined benefit and defined contribution plans we sponsor for our employees. The "Pension and Other Post-Employment Benefit Plans" section of Note 1: Summary of Significant Accounting Policies provides information about how we account for pension and other post-employment plans and benefits.

DEFINED BENEFIT PLANS WE SPONSOR

OVERVIEW OF PLANS

The defined benefit pension plans we sponsor in the U.S. and Canada differ according to each country’s requirements. In the U.S., we have plans that qualify under the Internal Revenue Code (qualified plans), as well as plans for select employees that provide additional benefits not qualified under the Internal Revenue Code (nonqualified plans). In Canada, we have plans that are registered under the Income Tax Act and applicable provincial pension acts (registered plans), as well as nonregistered plans for select employees that provide additional benefits that may not be registered under the Income Tax Act or provincial pension acts (nonregistered plans). We also sponsor other post-employment benefit (OPEB) plans in the U.S. and Canada, including retiree medical and life insurance plans.

We sponsor various defined contribution plans for our U.S. and Canadian salaried and hourly employees. Our contributions to these plans were $27 million, $27 million and $25 million in 2021, 2020 and 2019, respectively.

Actions to Reduce Pension Plan Obligations

As part of our continued efforts to reduce pension plan obligations, we transferred approximately $0.8 billion and $1.5 billion of U.S. qualified pension plan assets and liabilities to insurance companies through the purchase of group annuity contracts in December 2020 (2020 Retiree Annuity Purchase) and January 2019 (2019 Retiree Annuity Purchase), respectively. In connection with these transactions, we recorded noncash pretax settlement charges of $253 million and $449 million during 2020 and 2019, respectively. These settlement charges accelerated the recognition of previously unrecognized losses in "accumulated other comprehensive loss," that would have been recognized in subsequent periods.

The 2019 Retiree Annuity Purchase triggered a remeasurement of plan assets and liabilities. We updated the discount rate used to measure our projected benefit obligation for the U.S. qualified pension plan as of January 31, 2019, as well as our discount rate used to calculate the related net periodic benefit cost for the remainder of 2019 to 4.30 percent from 4.40 percent. All other assumptions remained unchanged. The net effect of the remeasurement was a $24 million reduction in funded status, primarily driven by the decrease in discount rate. This change in funded status was reflected on our Consolidated Balance Sheet as of March 31, 2019. Given the timing of the 2020 Retiree Annuity Purchase, the plan remeasurement triggered as a result of the transaction was conducted as part of our annual valuation process.

Additionally, we settled the assets and liabilities associated with three Canadian registered pension plans through the purchase of group annuity contracts in October 2019. As a result of the transaction, we recorded a noncash pretax settlement charge of $6 million.

FUNDED STATUS OF PLANS

The funded status of the plans we sponsor is determined by comparing the projected benefit obligation with the fair value of plan assets at the end of the year. The following table demonstrates how our plans' funded status is reflected on our Consolidated Balance Sheet.

DOLLAR AMOUNTS IN MILLIONS
	PENSION						OPEB
	2021			2020			2021			2020
Projected benefit obligation at beginning of year	$	3,971		$	4,260		$	149		$	151
Service cost		42			36			—			—
Interest cost		98			139			3			4
Actuarial (gains) losses(1)		(206	)		540			(9	)		5
Plan participants’ contributions		—			—			2			2
Benefits paid, including lump sum and annuity transfers		(199	)		(1,025	)		(13	)		(14	)
Other, including foreign currency translation		2			21			(1	)		1
Projected benefit obligation at end of year	$	3,708		$	3,971		$	131		$	149
Fair value of plan assets at beginning of year (estimated)	$	3,230		$	3,719		$	15		$	19
Actual return on plan assets(2)		336			490			—			—
Employer contributions and benefit payments		50			21			9			8
Plan participants’ contributions		—			—			2			2
Benefits paid, including lump sum and annuity transfers		(199	)		(1,025	)		(13	)		(14	)
Other, including foreign currency translation		1			25			—			—
Fair value of plan assets at end of year (estimated)	$	3,418		$	3,230		$	13		$	15
Presentation on our Consolidated Balance Sheet:(3)
Noncurrent assets	$	52		$	58		$	—		$	—
Current liabilities		(16	)		(17	)		(7	)		(8	)
Noncurrent liabilities		(326	)		(782	)		(111	)		(126	)
Funded status(4)	$	(290	)	$	(741	)	$	(118	)	$	(134	)
Accumulated benefit obligation at end of year	$	3,601		$	3,855		N/A			N/A
Actuarial Assumptions Used in Estimating Our Pension and OPEB Benefit Obligations:
Discount rate(5)	2.90 - 3.10%			2.50%			2.60 - 3.00%			2.10 - 2.40%
Rate of compensation increase(6)	2.00 - 13.00%			2.00 - 13.00%			N/A			N/A
Lump sum or installment distributions election(7)	60.00%			60.00%			N/A			N/A
Healthcare cost trend rate:
Assumed for next year(8)	N/A			N/A			4.50 - 6.20%			4.50 - 6.80%
Ultimate(8)	N/A			N/A			4.00 - 4.50%			4.00 - 4.50%
Year when rate will reach ultimate(8)	N/A			N/A			2037 - 2040			2037 - 2040

(1) Actuarial (gains) losses are primarily due to year over year changes in discount rates.

(2) Includes adjustments for final fair value of plan assets.

(3) Assets and liabilities on our Consolidated Balance Sheet are different from the cumulative income or expense that we have recorded associated with the plans. The differences are actuarial gains and losses and prior service costs and credits that are deferred and amortized into periodic benefit costs in future periods. Unamortized amounts are recorded in "Accumulated Other Comprehensive Loss", which is a component of total equity on our Consolidated Balance Sheet. The "Accumulated Other Comprehensive Loss" section of Note 15: Shareholders’ Interest details changes in these amounts by component.

(4) For pension plans with a projected benefit obligation exceeding plan assets, the projected benefit obligation and fair value of plan assets were $2.9 billion and $2.5 billion at December 31, 2021, respectively, and $3.1 billion and $2.3 billion at December 31, 2020, respectively. For pension plans with an accumulated benefit obligation exceeding plan assets, the accumulated benefit obligation and fair value of plan assets were $2.8 billion and $2.5 billion at December 31, 2021, respectively, and $3.0 billion and $2.3 billion at December 31, 2020, respectively.

(5) For the U.S. defined benefit plans, the discount rate assumption was 2.9% and 2.5% for 2021 and 2020, respectively. For the Canadian defined benefit plans, the discount rate assumption was 3.1% and 2.5% for 2021 and 2020, respectively. For U.S. OPEB plans, the discount rate assumption was 2.6% and 2.1% for 2021 and 2020, respectively. For Canadian OPEB plans, the discount rate assumption was 3.0% and 2.4% for 2021 and 2020, respectively. For lump sum distributions (for U.S. qualified salaried and nonqualified plans only), the discount rate assumption was based on the PPA Phased Table: Interest and mortality assumptions as mandated by the Pension Protection Act of 2006.

(6) For the U.S. defined benefit plans, the rate of compensation increase assumption for both 2021 and 2020 was between 2.00% - 13.00% for salaried and hourly participants and was decreasing with participant age. For the Canadian defined benefit plans, the rate of compensation increase assumption for both 2021 and 2020 was 3.25% and 3.00% for salaried and hourly participants, respectively.

(7) U.S. qualified salaried and nonqualified plans only.

(8) For U.S. OPEB plans, the healthcare cost trend rate assumption for the next year for Pre-Medicare was 6.20% and 6.80% for 2021 and 2020, respectively. The healthcare cost trend rate assumption for Health Reimbursement Account (HRA) was 4.50% for both 2021 and 2020. The ultimate healthcare cost trend rate was 4.50% and the assumption for the year the ultimate healthcare cost trend rate is reached was 2037 in both 2021 and 2020. For Canadian OPEB plans, the healthcare cost trend rate was 5.30% for both 2021 and 2020. The ultimate healthcare cost trend rate was 4.00% and the assumption for the year the ultimate healthcare cost trend rate is reached was 2040 for both 2021 and 2020.

PENSION ASSETS

Our Investment Policies and Strategies

Our investment policies and strategies guide and direct how the funds are managed for the benefit plans we sponsor. These funds include our:

• U.S. Pension Trust — funds our U.S. qualified pension plans;

• Canadian Pension Trust — funds our Canadian registered pension plans and

• Retirement Compensation Arrangements — fund a portion of our Canadian nonregistered pension plans.

U.S. and Canadian Pension Trusts

In 2018, we began to shift pension plan assets to an allocation that more closely aligns with our pension plan liability profile. Our former investment strategy included investments primarily in hedge funds and private equity funds. These asset classes are now in redemption and run-off mode. However, given the long-term nature of these investments, they will continue to comprise a portion of the plan assets for several years. We expect all investments in redemption to be redeemed at amounts materially consistent with their net asset values (NAV). As these investments are redeemed or liquidated, cash proceeds available for investment will be invested in accordance with our revised investment strategy.

The revised investment strategy targets a percentage allocation to growth assets and a percentage allocation to liability hedging assets based on each plan’s funded status. We expect to increase the allocation to liability hedging assets over time as the funded status of the pension plan improves. Growth assets include investments in global equities, hedge funds (which are in redemption) and private equity assets (which are in run-off mode). Liability hedging assets include corporate credit and government issued fixed income securities as well as treasury futures selected to align with the plan liabilities.

In December 2021, we entered into an agreement to sell certain private equity and hedge fund investments to a third party for $189 million (2021 Secondary Sale) in accordance with our investment strategy. A majority of the assets were transferred to the buyer by year-end 2021. The remaining assets included in the sale are held at the purchase price and are expected to transfer during 2022 in accordance with the agreement.

Assets within our U.S. and Canadian pension trusts were invested as follows:

	DECEMBER 31, 2021			DECEMBER 31, 2020
Cash and short-term investments(1)	12.1%			3.6%
Fixed income investments:(2)
Corporate		40.5			30.6
Government		21.2			31.8
Repurchase agreements		(1.3	)		(2.8	)
Hedge funds and related investments(3)(4)		3.6			6.9
Private equity and related investments(4)(5)		24.9			30.0
Derivative instruments, net(6)		0.1			0.2
Accrued liabilities		(1.1	)		(0.3	)
Total	100.0%			100.0%

(1) Cash and short-term investments are valued at cost, which approximates market. The increased cash holding at year-end 2021 was a result of the 2021 Secondary Sale transaction timing. Refer to “U.S. and Canadian Pension Trusts” above for further information.

(2) Fixed income investments include publicly traded corporate and government issued debt. These bonds have varying maturities, credit quality and sector exposure and are selected to align with the duration of our plan liabilities. Additionally, our fixed income portfolio includes repurchase agreements, which represent short-term borrowings to hedge against interest rate risk. We have an obligation to return the cash related to these borrowings in accordance with the agreements, which are collateralized by our government bonds. Fixed income investments are valued at exit prices quoted in active or non-active markets or based on observable inputs.

(3) Hedge funds and related investments are privately-offered managed pools primarily structured as limited liability entities. General members or partners of these limited liability entities serve as portfolio managers and are thus responsible for the fund’s underlying investment decisions. Underlying investments within these funds may include long and short public and private equities, corporate, mortgage and sovereign debt, options, swaps, forwards and other derivative positions. These funds have varying degrees of leverage, liquidity and redemption provisions.

(4) These investments are primarily valued based on the NAVs of the funds. These values represent the per-unit price at which new investors are permitted to invest and existing investors are permitted to exit. When NAVs as of the end of the year have not been received, we estimate fair value by adjusting the most recently reported NAVs for market events and cash flows between the interim date and the end of the year.

(5) Private equity and related investments are investments in private equity, mezzanine, distressed, co-investments and other structures. Private equity funds generally participate in buyout and venture capital strategies through unlisted equity and debt instruments. These funds may also borrow at the underlying entity level. Mezzanine and distressed funds generally invest in the debt of public or private companies with additional participation through warrants or other equity options.

(6) Derivative instruments have historically been comprised of swaps, futures, forwards or options. Consistent with our shift in asset strategy, our positions in derivative instruments have been significantly reduced. At December 31, 2021, only a small amount of futures remain in our portfolio. Derivative instruments are valued based upon valuation statements received from each derivative’s counterparty.

Retirement Compensation Arrangements

Retirement compensation arrangements fund a portion of our Canadian nonregistered pension plans. As required by Canadian tax rules, approximately 50 percent of these assets are invested into a non-interest bearing refundable tax account held by the Canada Revenue Agency. This portion of the portfolio does not earn returns. The remaining portion is invested in a portfolio of equities.

Managing Risk

Investments and contracts are subject to risks including market price, interest rate, credit, currency and liquidity risks. The following provides an overview of these risks and describes governance processes and actions we take to mitigate these risks on our pension plan asset portfolios.

RISK	MITIGATION
Market price risk is the risk that market fluctuations will adversely affect the value of plan assets.	The trusts mitigate market price risk by investing in a diversified portfolio. In addition, we and our investment advisers perform regular monitoring with ongoing qualitative assessments, quantitative assessments, and comprehensive investment and operational due diligence.
Interest rate risk exists with respect to both assets and liabilities and is the risk that a change in interest rates will adversely affect the fair value of interest rate securities or liabilities, thereby affecting the overall funded status.	This risk is mitigated by investing a portion of trust assets in fixed income investments which more closely match the plan liabilities.
Credit risk is the risk that counterparties’ failure to discharge their obligations could affect cash flows. The trusts have exposure primarily through investments in fixed income securities.	This risk is mitigated by investing in a diversified portfolio, initial due diligence, and ongoing monitoring processes.
Currency risk arises from holding plan assets denominated in a currency other than the currency in which its liabilities are settled.	This risk is mitigated by investing a portion of the Canadian plan assets in Canadian dollar fixed income investments.
Liquidity risk is the risk that the trust will not be able to settle liabilities such as payments to participants, counterparties, and service providers. Private equity and hedge fund investments generally have less liquidity than publicly traded investments.	This risk is mitigated through investing a significant portion of plan assets in liquid instruments such as publicly traded fixed income.

Valuation of Our Plan Assets

Pension assets are stated at fair value or NAV. Fair value is based on the amount that would be received to sell an asset or paid to settle a liability in an orderly transaction between market participants at the reporting date. We consider both observable and unobservable inputs that reflect assumptions applied by market participants when setting the exit price of an asset or liability in an orderly transaction within the principal market for that asset or liability.

We value the pension plan assets based upon the observability of exit pricing inputs and classify pension plan assets based upon the lowest level input that is significant to the fair value measurement of the pension plan assets in their entirety. Refer to Note 1: Summary of Significant Accounting Policies for details on the fair value hierarchy.

Investments for which fair value is measured using the NAV per share as a practical expedient are not categorized within the fair value hierarchy.

The net pension plan assets, when categorized in accordance with this fair value hierarchy, are as follows.

DOLLAR AMOUNTS IN MILLIONS	2021											2020
		LEVEL 1		LEVEL 2			LEVEL 3		TOTAL				LEVEL 1		LEVEL 2			LEVEL 3		TOTAL
Pension trust investments:
Cash and short-term investments		$	412	$	—		$	—	$	412			$	117	$	—		$	—	$	117
Fixed income investments:
Corporate			—		1,380			—		1,380				—		985			—		985
Government			—		721			—		721				—		1,021			—		1,021
Repurchase agreements			—		(43	)		—		(43	)			—		(90	)		—		(90	)
Hedge funds and related investments(1)			—		—			10		10				—		—			4		4
Private equity and related investments(1)			—		—			104		104				—		—			68		68
Derivative instruments(2)			—		5			—		5				—		8			—		8
Total pension trust investments measured at fair value(1)			412		2,063			114		2,589				117		1,924			72		2,113
Canadian nonregistered plan assets:
Cash and short-term investments			5	—			—			5				5		—			—		5
Public equity investments			6	—			—			6				5		—			—		5
Total Canadian nonregistered plan assets measured at fair value			11	—			—			11				10		—			—		10
Total plan assets measured at fair value(1)									$	2,600										$	2,123

(1) December 31, 2021 and 2020 exclude $856 million and $1,116 million of hedge fund and private equity investments that are measured at fair value using the NAV per share (or its equivalent) as a practical expedient, which are not required to be classified in the fair value hierarchy. Additionally, December 31, 2021 and 2020 exclude $38 million and $9 million of accrued liabilities, respectively.

(2) Derivative instruments include futures contracts. The fair value and aggregate notional value of these contracts were $5 million and $1,126 million at December 31, 2021, respectively, and $8 million and $449 million at December 31, 2020, respectively.

A reconciliation of the beginning and ending balances of the pension plan assets measured at fair value using significant unobservable inputs (Level 3) is presented below:

DOLLAR AMOUNTS IN MILLIONS
2021	Beginning Balance		Realized Gain (Loss)		Unrealized Gain (Loss)			Purchases, Sales, Settlements, Net			Transfers In (Out), Net			Ending Balance
Hedge funds and related investments	$	4	$	—	$	—		$	(1	)	$	7		$	10
Private equity and related investments		68		—		11			(4	)		29			104
Total	$	72	$	—	$	11		$	(5	)	$	36		$	114
2020	Beginning Balance		Realized Gain (Loss)		Unrealized Gain (Loss)			Purchases, Sales, Settlements, Net			Transfers In (Out), Net			Ending Balance
Hedge funds and related investments	$	13	$	3	$	(4	)	$	(9	)	$	1		$	4
Private equity and related investments		86		—		(1	)		(9	)		(8	)		68
Total	$	99	$	3	$	(5	)	$	(18	)	$	(7	)	$	72

The availability of observable market data is monitored to assess the appropriate classification of financial instruments within the fair value hierarchy. Changes in economic conditions or model-based valuation techniques may require the transfer of financial instruments from one fair value level to another. In such instances, the transfer is reported at the beginning of the reporting period. We evaluate the significance of transfers between levels based upon the nature of the financial instrument and size of the transfer relative to total net assets available for benefits.

ACTIVITY OF PLANS

Net Periodic Benefit Cost

Our net periodic benefit cost and the assumptions used to estimate it are shown in the following table.

DOLLAR AMOUNTS IN MILLIONS
	PENSION									OPEB
	2021			2020			2019			2021			2020			2019
Net periodic benefit cost:
Service cost	$	42		$	36		$	32		$	—		$	—		$	—
Interest cost		98			139			160			3			4			6
Expected return on plan assets		(204	)		(234	)		(223	)		—			—			—
Amortization of actuarial loss		115			122			112			5			4			7
Amortization of prior service cost (credit)		3			3			4			(1	)		(1	)		(5	)
Settlement charges		—			253			455			—			—			—
Net periodic benefit cost	$	54		$	319		$	540		$	7		$	7		$	8
Actuarial Assumptions Used in Estimating Our Pension and OPEB Net Periodic Benefit Cost:
Discount rate(1)(2)	2.50%			3.10 - 3.40%			3.70 - 4.40%			2.10 - 2.40%			3.00%			3.70 - 4.20%
Expected return on assets(3)	6.00%			6.50%			7.00%			N/A			N/A			N/A
Rate of compensation increase(4)	2.00 - 13.00%			2.00 - 13.00%			2.00 - 13.00%			N/A			N/A			N/A
Lump sum or installment distributions election(5)	60.00%			60.00%			60.00%			N/A			N/A			N/A
Weighted healthcare cost trend rate(6)	N/A			N/A			N/A			4.50 - 6.80%			4.50 - 7.30%			4.50 - 7.80%

(1) For the U.S. defined benefit plans, the discount rate assumption was 2.50%, 3.40% and 4.30% for 2021, 2020 and 2019, respectively. For the Canadian defined benefit plans, the discount rate assumption was 2.50%, 3.10% and 3.70% for 2021, 2020 and 2019, respectively. For U.S. OPEB plans, the discount rate assumption was 2.10%, 3.00% and 4.20%, for 2021, 2020 and 2019, respectively. For Canadian OPEB plans, the discount rate assumption was 2.40%, 3.00% and 3.70% for 2021, 2020 and 2019, respectively. For lump sum distributions (for U.S. qualified salaried and nonqualified plans only), the discount rate assumption was based on the PPA Phased Table: Interest and mortality assumptions as mandated by the Pension Protection Act of 2006.

(2) The discount rate used to estimate our net periodic benefit cost for January 2019 was 4.40%. Due to the remeasurement triggered by the 2019 Retiree Annuity Purchase, the discount rate was updated to 4.30% for the remainder of the year.

(3) Determining our expected return requires a high degree of judgment. We consider actual pension fund asset performance over multiple years, and current and expected valuation levels in the global equity and credit markets. Historical fund returns are used as a base and we place added weight on more recent pension plan asset performance. As discussed in the “Our Investment Policies and Strategies” and “U.S. and Canadian Pension Trusts” sections above, fixed income securities continue to make up a larger portion of our plan assets. As a result, we reduced our assumption of long-term rate of return on plan assets to 5.00% for the year ending December 31, 2022.

(4) For the U.S. defined benefit plans, the rate of compensation increase assumption for 2021, 2020 and 2019 was between 2.00% - 13.00% for salaried and hourly participants and was decreasing with participant age. For the Canadian defined benefit plans, the rate of compensation increase assumption for salaried participants was 3.25% for 2021, 2020 and 2019. The rate of compensation increase assumption for hourly participants was 3.00% for 2021, 2020 and 2019.

(5) U.S. qualified salaried and nonqualified plans only.

(6) For OPEB plans during 2021, the assumed weighted healthcare cost trend rate was 6.8%, 4.5% and 5.3% for U.S. Pre-Medicare participants, U.S. HRA participants and Canadian OPEB plans, respectively.

Pension Plan Contributions and Benefit Payments

Established funding standards govern the funding requirements for our qualified and registered pension plans. We fund the benefit payments of our nonqualified and nonregistered plans as benefit payments come due.

During 2021, we made contributions and/or benefit payments of $16 million for our U.S. nonqualified pension plans, $2 million for our Canadian nonregistered pension plans and $2 million for our Canadian registered plans. Additionally, we voluntarily contributed $30 million to our U.S. qualified pension plans during 2021, although there was no minimum required contribution for the year.

During 2022, based on estimated year-end asset values and projections of plan liabilities, we expect to make contributions and/or benefit payments of approximately:

• $13 million for our U.S. nonqualified pension plans,

• $3 million for the Canadian non-registered plans and

• $2 million for our Canadian registered plan (required contribution).

We do not anticipate contributions being required for our U.S. qualified pension plan for 2022.

OPEB Benefit Payments

During 2021, we contributed $7 million and $2 million to our U.S. and Canadian OPEB plans, respectively. In 2022, we expect to make contributions of $12 million in total for our U.S. and Canadian OPEB plans, including $4 million expected to be required to cover benefit payments under collectively bargained contractual obligations.

Estimated Projected Benefit Payments for the Next 10 Years

DOLLAR AMOUNTS IN MILLIONS
	PENSION		OPEB
2022	$	189	$	12
2023	$	193	$	11
2024	$	194	$	11
2025	$	192	$	10
2026	$	195	$	9
2027-2031	$	986	$	41

UNION-ADMINISTERED MULTIEMPLOYER BENEFIT PLANS

We contribute to multiemployer defined benefit plans under the terms of collective-bargaining agreements. These plans cover a small number of our employees and on an annual basis our contributions are immaterial.

These plans have different risks than single-employer plans. Our contributions may be used to fund benefits for employees of other participating employers. If we choose to stop participating, we may be required to pay a withdrawal liability based on the underfunded status of the plan. If another participating employer stops contributing to the plan, we may become responsible for remaining plan unfunded obligations.